IFRS III - C3 - Consolidation Method

5/26/2022
Chapter 3
Nguyễn Thị Thu Hiền
Content
1. Elimination of Investment in a Subsidiary (Entry 1)

2. Amortization of fair value differential (Entry 2)
3. Goodwill Impairment Tests (Entry 3)
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1. Elimination of Investment Account
What the parent is paying for
Consideration Share of book Share of excess

transferred by value of of fair value
Goodwill
parent = subsidiary’s net + over book value +
assets at of identifiable
acquisition date net assets
Eliminated against
subsidiary’s share
capital, pre-
acquisition retained
earnings and pre-  Investment account is eliminated
acquisition other  To ensure that the investment account must be zero
equity items  Substituted with subsidiary’s identifiable net assets and goodwill
(residual)
 Rationale: Avoid recognizing assets in two forms (investment in
parent’s statement of financial position and individual assets and
liabilities of subsidiary)
Illustration 1: Elimination of Investment

Illustration
On 8 August 2010, Parent Co. bought 100% interest in subsidiary for $200,000.
At the date of acquisition, Subsidiary Co. had the following:
Share capital: $50,000

Retained earnings: $30,000
Equity: $80,000
At acquisition date, Subsidiary Co. had an unrecognized intangible asset had a

fair value of $50,000. Tax rate was 20%

Consolidation Consolidated Statement of financial
Parent Subsidiary
adjustments position
Dr Cr
Assets
Investment in
200,000 200,000 0
Subsidiary
Goodwill (Note 2) 80,000 80,000
Other net assets
300,000 80,000 50,000 10,000 420,000
(Note 1)
500,000 80,000 130,000 210,000 500,000
Equity
Share capital 100,000 50,000 50,000 100,000
Retained earnings 400,000 30,000 30,000 400,000
500,000 80,000 80,000 0 500,000
210,000 210,000
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Note 1:
Increase in other net assets due to recognition of intangible asset 50,000
Decrease in other net assets due to recognition of deferred tax liability (10,000)
Net increase in other net assets 40,000
Note 2:
Goodwill is excess of the investment amount over the FV of identifiable net assets
Investment in Subsidiary 200,000
Book value of equity or net assets (80,000)
Fair value of intangible asset 50,000
Book value of intangible asset 0
Excess of fair value over book value 50,000
Deferred tax effects (10,000)
(40,000)
Goodwill 80,000
CJE1: Elimination of investment in subsidiary

Dr Share capital 50,000
Dr Retained earnings 30,000
Dr Goodwill 80,000
Dr Intangible asset 50,000
Investment in
Cr 200,000
Subsidiary
Cr Deferred tax liability 10,000
210,000 210,000
Re-enacting CJE
• Building blocks of consolidation worksheet are the legal entity financial

statements of parent and subsidiary
• CJE 1 has to be re-enacted at each reporting date as long as Parent has control
over subsidiary
• Each consolidation process is a fresh-start approach
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Thí dụ 1
GTSS GTHL
Ngày 1/1/X0: Công ty M phát
Tiền 20 20
hành 10 triệu CP, mệnh giá 10.000 HTK 20 40
đ/CP để mua 75% cổ phần của TSCĐ 40 90
công ty C. Giá thị trường cổ phần

Nợ phải trả (20) (20)
M là 15.000 đ/CP. Giá trị sổ sách NTT 0 (20)
và giá trị hợp lý tại ngày mua của Tài sản thuần 60 140
Vốn GCSH (40)
công ty C như sau: (Bảng đvt: tỷ
LNCPP (20)
đồng). Tổng VCSH (60)
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Thí dụ 1 (tt).
Ngoài ra tại ngày mua, C còn một khoản nợ tiềm tàng 20 tỉ đồng
đã đủ điều kiện ghi nhận là dự phòng nợ phải trả , và một bằng
phát minh sáng chế thỏa mãn điều kiện ghi nhận 50 tỉ đồng. Thuế
suất thuế TNDN là 20%
Yêu cầu: Xác định LTTM trong 2 trường hợp
(1) Giá trị khoản NCI được xác định trên tài sản thuần theo PP tỉ
lệ.
(2) Giá trị khoản NCI được xác định theo giá trị hợp lý (Bên KKS
đang nắm giữ 2,5 triệu cổ phiếu công ty C, mệnh giá 10.000 đ/CP,
giá thị trường hiện tại 20.000 đ/CP).
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Thí dụ 1 (tt).
GTSS GTHL CL
Tiền 20 20 0
HTK 20 40 20
TSCĐ 40 90 50
R/D 0 50 50
Nợ phải trả (20) (20) 0

NTT 0 (20) (20)
DTL (20)
Tài sản thuần 60 140
Vốn GCSH (40)
LNCPP (20)
Tổng VCSH (60)

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2. Amortization of fair value differential

(Subsequent to Acquisition)
• At acquisition date, we recognize:
– Fair value of identifiable net assets of acquiree as at
acquisition date,
– Intangibles assets, contingent liabilities,
– Deferred tax assets or liabilities on the above, and
– Goodwill as a residual
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• In subsequent years:
– Subsequent extinguishment of assets and liabilities of subsidiary
must be determined based on the fair values at acquisition date.
– Therefore, subsequent amortization, depreciation and cost of
sales of acquired assets are determined based on fair value as at
acquisition date
– Elimination of consideration transferred, recognition of fair value
adjustments and amortization entries must be repeated until:
i. Date of disposal of the investment in subsidiary; or
ii. Date when control is lost
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• In subsequent years (cnt).:
 Acquisition method only recognizes fair value at critical event: acquisition date
 New internally-generated goodwill or subsequent appreciation in fair values
are not recognized subsequent to acquisition date
 Since net assets are carried at book value (carrying amount) in the separate
financial statements, the subsequent amortization/depreciation/disposal are
adjusted in the consolidation worksheet
BV of expense in (FV – BV) adjustment FV of expense

separate to expense in consolidated
financial + = financial
statements Adjusted in consolidation statements
worksheet
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Thí dụ 1 (tt): Chênh lệch GTHL ngày mua.

Book value Faire value CL
Inventory 20 40 20
PPE 40 90 50
R/D 0 50 50
Contingent L 0 (20) (20)
DTL (20)
Cho biết:
1. HTK bán ra trong các năm X0,và X1 lần lượt là: 40% và 35%, năm X3 công ty
con lập dự phòng giảm giá cho số hàng còn lại (giảm 20% so với giá gốc).
2. PPE khấu hao tuyến tính 5 năm
3. R/D khấu hao 3 năm, cuối năm X1 công ty con ghi nhận là TSVH với giá trị 45
tỷ đ
4. Nợ tiềm tàng được công ty con chính thức ghi nhận là dự phòng nợ phải trả
vào năm X2 với giá trị 15 tỷ đồng
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Illustration 2:
Amortization of Fair Value Differentials
• P Co. paid $6,200,000 and issued 1,000,000 of its own shares to acquire 80% of
S Co. on 1 Jan 20×5
• Fair value of P Co’s share is $3 per share
• Fair value of net identifiable assets is as follows:
Book value Fair value Remaining useful life

Leased property 4,000,000 5,000,000 20 years
In-process R&D 2,000,000 10 years
Other assets 1,900,000 1,900,000
Liabilities (1,200,000) (1,200,000)
Contingent liability (100,000)
Net assets 4,700,000 7,600,000
Share capital 1,000,000

Retained earnings 3,700,000
Shareholders’ equity 4,700,000
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Illustration 2:
Additional information:
• Contingent liability of $100,000 was recognized as a provision
loss by the acquiree in legal entity financial statement on Dec
20×5
• FV of NCI at acquisition date was $2,300,000
• Net profit after tax of S Co. for 31 Dec 20×5 was $1,000,000
• No dividends were declared during 20×5
• Shareholders’ equity as at 31 Dec 20×5 was $5,700,000
Q1 : Prepare the consolidation adjustments for P Co. for 20×5

Q2 : Perform analytical check on balance of NCI as at 31 Dec 20×5
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Illustration 2:
 Consideration transferred = Cash consideration + Fair value

of share issued
= $6,200,000 + (1,000,000 × $3)
= $9,200,000
 Deferred tax liability = 20% × ($7,600,000 − $4,700,000)

= $580,000
 Goodwill = Consideration transferred + NCI – Fair value of net

identifiable assets, after-tax
= $9,200,000 + $2,300,000 – ($7,600,000 − $580,000)
= $4,480,000
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Illustration 2:
• P’s share of goodwill = Consideration transferred – 80% × Fair

value of net identifiable assets, after tax
= $9,200,000 – 80% × $7,020,000
= $9,200,000 – $5,616,000
= $3,584,000
• NCI’s share of goodwill = Consideration transferred – 20% × Fair

value of net identifiable assets, after tax
= $2,300,000 – 20% × $7,020,000
= $2,300,000 – $1,404,000
= $896,000
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Illustration 2:
Consolidation adjustments for 20×5

CJE 1: Elimination of Investment in Subsidiary
Dr Share capital 1,000,000

Dr Opening retained earnings 3,700,000
Dr Leased property 1,000,000
Dr In-process R&D 2,000,000
Dr Goodwill 4,480,000
Cr Contingent liability 100,000
Cr Deferred tax liability (net) 580,000
Cr Investment in S 9,200,000
Cr Non-controlling interests 2,300,000
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Illustration 2:
CJE 2: Depreciation and amortization of excess of FV over book value
Dr Depreciation of leased property 50,000

Dr Amortization of in-process R&D 200,000
Cr Accumulated depreciation 50,000
Cr Accumulated amortization 200,000
Under dep. by Under amort. by
$50k $200k
Dep exp:
$50,000
Amort exp:
Amort. of $200,000
Dep. of
leased $200,000 $250,000 R&D
property $0
Based on
Based on book value Based on FV
book value Based on FV
22
Illustration 2:
CJE 3: Reversal of entry relating to provision for loss
Dr Provision for loss 100,000

Cr Loss expense 100,000
Note: Contingent liability was already recognized in CJE 1. The

recognition by the acquiree in its legal entity financial statement results in
double counting; hence this reversal entry is necessary
CJE 4: Tax effects on CJE 2 & CJE 3
Dr Deferred tax liability (net) 30,000 20% * (200k +

50k − 100k)
Cr Tax expense 30,000
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Illustration 2:
CJE 5: Allocation of current year profit to non-controlling interests (NCI)
Dr Income to NCI 176,000

Cr NCI 176,000
Net profit after tax 1,000,000

Excess depreciation (50,000)
Excess amortization (200,000)
Reversal of loss from contingent liability 100,000
Tax effects on FV adjustments 30,000
Adjusted net profit 880,000
NCI’s share (20%) 176,000
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3.Goodwill Impairment Test

• IAS 36: Goodwill has to be reviewed annually for impairment
loss
– Reviewed as part of a cash-generating unit (CGU)
• CGU is the lowest level at which the goodwill is
monitored for internal management purposes and
• Not larger than a segment determined under IFRS 8
Operating Segments
– Goodwill will be allocated to each of the acquirer’s CGU, or
group of CGUs
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3. Goodwill Impairment Test

1. Carrying amount:
– Net assets of the cash-generating unit
– It includes entity goodwill attribute to parent and NCI
2. Recoverable amount:
– IAS 36 allows the higher of the below two metrics to determine recoverable
amount:
− Higher of FV less cost to sell (an arms-length measure)
− Uses market based inputs or market participants’ assumptions in the
valuation process
− Value-in-use (VIU)
− Present value of future net cash flows
− Uses internal or entity-specific input to determine the future cash flows
− VIU likely to be more discretionary as assumptions about future cash flows
are required
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3. If carrying amount > recoverable amount

 Impairment loss is first allocated to goodwill
 Then to other assets in proportion to their individual
carrying amounts
 Impairment tests to be carried out on annual basis;
regardless of whether indications of impairment exists
 Impairment once made is not reversible, as it may result
in the recognition of internally-generated goodwill which
is prohibited under IAS 38
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3.Goodwill Impairment Test
Steps for impairment test
Determine the carrying amount of the CGU
Determine the recoverable amount of the CGU
Recoverable amount: Higher of fair value or value in use
If carrying amount ≤ If carrying amount ≥

recoverable amount recoverable amount
Allocate impairment loss

No impairment loss
to goodwill first and
balance to other net assets
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NCI as a proportion of
NCI at FV at acquisition
identifiable net asset at
date
acquisition date
Goodwill on
Includes NCI’s goodwill Excludes NCI’s goodwill
consolidation
Goodwill is allocated to cash- Goodwill has to be grossed up
generating unit without to include NCI’s share
Carrying amount of further adjustment
cash-generating
unit Notionally adjusted goodwill
= Recognized
goodwill/parent’s interest
Impairment loss is shared
Impairment loss is borne only
between parent and NCI on
Impairment loss by parent as goodwill for NCI
the same basis on which profit
is not recognized
or loss is allocated
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Illustration 4:
Goodwill Impairment Test
Company × has 80% ownership in a CGU with identifiable net

assets of $6 million as at 31 Dec 20×1. The recoverable amount
of the CGU as an entity was $5 million as at that date. Determine
the impairment loss of goodwill in the CGU under two alternative
measurement basis:
(a) NC measured at FV at acquisition date. Goodwill recognized

by CGU was $1.2 million
(b) NCI measured as a proportion of FV of identifiable net assets
at acquisition date. Goodwill recognized by CGU was $1
million
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Illustration 4:
Question (a)
Goodwill Identifiable net assets Total

Carrying amount 1,200,000 6,000,000 7,200,000
Recoverable amount 5,000,000
Impairment loss 1,200,000 1,000,000 2,200,000
Impairment loss borne by

Parent and NCI 1,200,000 1,000,000 2,200,000
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Illustration 4:
Question (b)
Goodwill Identifiable net assets Total
Carrying amount 1,000,000 6,000,000 7,000,000
NCI's stet share of goodwill 250000 (20% × $1 million/0.8) 250,000

Notionally adjusted carrying
amount 1,250,000 6,000,000 7,250,000
Recoverable amount 5,000,000
Impairment loss 1,250,000 1,000,000 2,250,000
Impairment loss recognized 1000000 (80% × $1.25 million) 1,000,000 1,000,000
3333
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Thí dụ 2
Ngày 1/1/20X1 P mua 80% lợi ích (VCSH) của S với giá $ 250.000. Giá trị hợp lý lợi ích
cổ đông không kiểm soát vào ngày mua là 60.000 $. Vào ngày này, chênh lệch giá trị
hợp lý tài sản thuần của S chỉ bao gồm 1 thiết bị sản xuất như sau: Nguyên giá:
100.000 $, hao mòn lũy kế: 30.000$, giá trị hợp lý: 50.000$. Tài sản này có thời gian
sử dụng còn lại 5 năm kể từ ngày mua. Ngoài ra, vào ngày mua, vốn chủ sở hữu của S
gồm: (1) vốn góp cổ phần: 190.000 $ và (2) lợi nhuận giữ lại: 5.000$. Trong năm 20X1
lợi thế thương mại bị tổn thất so với giá trị ban đầu là 30%, năm 20X2 không bị tổn
thất. Thuế suất 20%. Năm tài chính kết thúc ngày 31/12. Lợi thế thương mại trình bày
trên Báo cáo tài chính hợp nhất theo phương pháp toàn bộ. Bút toán ghi nhận tổn
thất lợi thế thương mại trên sổ hợp nhất năm 20X2 là:
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Thí dụ 3
Ngày 1/1/20X6, P Co có năm tài chính kết thúc ngày 31/12) mua 80% cổ phần của S Co. S Co
có hai bộ phận (CGU): Vận tải và Thương mại. P Co đo lường NCI theo phương pháp tỷ lệ.
LTTM vào ngày mua (thuộc về cổ đông tập đoàn) là 4.000.000 $, phân bổ cho bộ phận Vận tải
là 1.500.000$ và bộ phận Thương Mại là 2.500.000$. Ngoài ra, tại ngày mua, toàn bộ tài sản
thuần của S có giá trị hợp lý bằng giá trị ghi sổ, ngoại trừ hàng tồn kho (thuộc bộ phận Thương
mại) có gía trị ghi sổ cao hơn giá trị hợp lý là 400.000$. Toàn bộ số hàng này đã bán hết vào
năm X7. Ngày 31/12/X8, P Co lần đầu tiên đánh giá tổn thất lợi thế thương mại. Vào ngày
31/12/X8:
(1) GTGS tài sản thuần (BCTC riêng) bộ phận Vận tải Dich vụ: 10.000.000$ và bộ phận
Thương mại là 15.000.000 ;
(2) GTHLcủa bộ phận Vận tải là: 9.800.000$ và bộ phận Thương mại là 17.000.000;
(3) Giá trị sử dụng của bộ phận Vận tải là: 10.500.000$ và bộ phận Thương mại là 16.500.000.
Thuế suất 20%.
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Q1
Ngày 1/1/X0, công ty M (năm tài chính kết thúc ngày 31/12) mua 60% vốn cổ phần
trong công ty C và có quyền kiểm soát cty C. Tại ngày mua có thông tin sau: Vốn đầu tư
chủ sở hữu 350 tỉ đồng, Lợi nhuận giữ lại 50 tỉ đồng. Ngoài ra có một TSCĐ vô hình có
giá trị hợp lý lớn hơn giá trị ghi sổ là 100 tỉ đồng, tài sản này được phân bổ trong 5
năm kể từ ngày mua. Lợi nhuận giữ lại của công ty B cho các năm tài chính kết thúc
vào các ngày 31/12/X0 và 31/12/X1 lần lượt: 80 tỉ đồng và 100 tỉ đồng. Cả ba năm
đều không có tổn thất lợi thế thương mại. Lợi nhuận sau thuế của C năm X2 là 42 tỷ
đồng, và chia cổ tức 5 tỷ đồng. Thuế suất 20%. Giá trị lợi ích của cổ đông không kiểm
soát (NCI) trình bày theo phương pháp tỷ lệ vào ngày mua và ngày 31/12/X2 lần lượt
là (Đvt: tỷ đồng):
A. 192 và 259,6
B. 192 và 261,6
C. 200 và 261,6
D. 200 và 274,4
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Content
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Intragroup transactions
1. Intragroup transactions & Principles

2. Intragroup transactions – Inventory
3. Transactions – PPE
4. Downstream sale – Upstream sale
5. Loss in transference
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• Operational and financial interdependencies within the group
entities
– Lead to intragroup transactions and balances
• Intragroup transactions include for example:

– Buying or selling of inventory
– Transferring of long lived assets
– Rendering or procuring of services
– Providing financing among the companies within the group
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• Intragroup transactions give rise to intragroup balances
– E.g. Loan receivable/payable to or from group companies,
Dividend receivable, Accounts payable/receivable to or from
group companies
• From an economic perspective, an entity is not able to transact

with itself
– Intragroup assets and liabilities, equity, income, expenses
and cash flows relating to transactions between entities of the
group are to be eliminated in full during consolidation
– Elimination adjustments are made in relation to the original
entries passed in the legal entity’s financial statements
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• Outstanding balances due to or from companies within a group are
eliminated
• Transactions in the income statement between the group
companies are eliminated
• Profit or loss resulting from intragroup transactions that are
included in the asset are eliminated in full (both parent’s & NCI’s
share)
• Tax effects on unrealized profit or loss included in the asset should
be adjusted according to IAS 12 Income Taxes
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Elimination of Realized Intragroup Transactions

 “Offsetting” effect on the group net profit from realized transactions
 Profit recorded by the selling company offset the expense recorded by
buying company
 Elimination is still required to avoid overstatement of individual line
items
Examples:
1. Transactions relating to interest:
 Usually no time lag in the recognizing of interest by borrower and
lender i.e. interest income exactly offsets the interest expense
 Elimination entry:
Dr Interest Income (lender)

Cr Interest Expense (borrower)
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Elimination of Realized Intragroup Transactions

– Exception: borrower capitalizes interest on borrowed money into
the cost of construction of a long-lived asset
Dr Interest Income
Cr Fixed assets in progress
2. Transactions relating to services provided

– Provision and consumption of services are simultaneous
– Elimination entry:
Dr Service Income
Cr Service Expense
– Exception: service receiver capitalizes service fee when the service

provided creates or enhances an asset or extends its useful life
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2.Intragroup transactions - Inventory

 Carrying amount of inventory is its cost which was the original
purchased price from a third party. Therefore, adjustments are
made to eliminate the profit element in the carrying amount of the
inventory arising from intragroup transaction
 Recognize profit only when the inventory is sold to 3rd party
✓ Cost of sales in the consolidated financial statements should be
the original cost as transacted with unrelated third parties and
not the transfer price invoiced by one group company to another
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2.Intragroup transactions - Inventory

Revenue, COGS, Inventory
Intragroup
profit Retained earning, Inventory Inventory, COGS
Deferred tax Unrealized profit

asset
Reversal of deferred tax Realized profit

asset
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Example 1 – Current period – All on hand

A parent sold a package of inventory, cost of goods sold: 100
CU, selling price: 150 CU. This inventory is still in warehouse.
The tax rate is 25%.
Required
Explain and prepare journal entries to eliminate inventory-
intragroup transaction.
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Solution
- Eliminate intragroup profit
Dr Revenue 150
Cr COGS 100
Cr Inventory 50
- Deferred tax recognition

Dr Deferred tax asset 50 x 25% = 12.5
Cr Deferred tax expense/Income 12.5
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Example 2 – Current period – Partly sold

A parent sold a package of inventory, cost of goods sold:
100 CU, selling price: 150 CU. 30% of the inventory was
sold to third parties.
Required
intragroup transaction.
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Solution
- Eliminate intragroup profit
Dr Revenue 150
Cr COGS 115 (100+15)
Cr Inventory 35
- Deferred tax recognition

Dr Deferred tax asset (35 x 25%) 8.75
Cr Deferred tax expense/income 8.75
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Example 3 – Previous periods – All on hand

In 20X0 a parent sold 100 CU worth of inventory to its
subsidiary with selling price of 150 CU. 30% of this
inventory was sold in 20X0. This inventory was still in
store in 20X1.
Required
intragroup transaction on consolidated financial statements
in 20x1
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Solution
- Eliminate unrealized profit:
Retained earnings: 35
Inventory: 35
- Deferred tax recognition – opening balance:
Deferred tax asset 8,75
Retained earnings 8,75
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Example 3 – Previous periods – Partly sold

In 20X0 a parent sold 100 CU worth of inventory to its
subsidiary with selling price of 150 CU. 30% of this
inventory was sold in 20X0. 40% of the remaining
inventory was sold to third parties in 20X1.
Required
intragroup transaction on consolidated financial statements
in 20x1
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Solution
- Eliminate unrealized profit - Recognized realized profit
Retained earnings 35 Inventory 35 x 40% = 14
Inventory 35 COGS 14
- Deferred tax recognition – opening - Reversal of deferred tax
balance Deferred tax expense 14 x 25% = 3,5
Retained earnings 8,75
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3.Intragroup transactions - PPE

• When fixed assets (FA) are transferred at a marked-up price
– The unrealized profit (or loss) must be eliminated from the carrying amount
of FA
– Account for the FA as if the transfer did not take place (group’s view)
Mark up
Prof +
$40,00 Trans
Acc. Dep. it on Acc.
0 Dep. fer
Original sale
cost price
NBV NBV
Before After
Transfer Transfer
56
1. Restate the FA carrying amount to the NBV as of the date of

transfer
2. Profit on sale of FA is adjusted out of consolidated income
statement if sale occurred in same period
3. Subsequent depreciation is determined on the basis of the
original historical cost of asset & estimated useful life
(include revision of estimate)
✓ “New” depreciation that is expensed to the legal entity’s
financial statements is calculated on the basis of the
transfer price
57
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− The difference between the legal entity’s depreciation* and
group’s depreciation is adjusted to:
✓ Consolidated income statement for current year
✓ Opening RE for prior year accumulated depreciation
4. The profit or loss on transfers of FA is realized through the series
of higher or lower depreciation charge subsequently
✓ Over the remaining useful life, aggregate of the additional
depreciation equals the “profit” of the sale
5. Tax effect must be adjusted on the unrealized profit and
subsequent corrections of depreciation
58
Example 4 – PPE transaction

A is an 100% owned subsidiary of B. On Jan 1st 2019, B sold an
plant to A for 400 CU in cash (carrying amount: cost 600 CU,
accumulated depreciation 400 CU). The plant had an estimated
useful life of 4 years from the date of sale. The income tax rate
was 30%.
Require
Prepare consolidation adjustments to eliminate effects of
intragroup sale of the plant on consolidated financial statements
in 2019, 2020
59
Solution - 2019
(1) Eliminate unrealized profit (3) Realization of unrealized profit
Gain on sale of the plan 200 Accumulated depreciation 50
Plant 200 Depreciation expense 50
Acc. depreciation 400
(2) Deferred tax consideration (4) Reversal of deferred tax impact

Deferred tax asset 60 Deferred tax expense 15
Deferred tax expense 60 Deferred tax asset 15
60
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Solution - 2020
Retained earnings 200 Accumulated depreciation 50 +50
Retained earing 50

Retained earning 15
Retained earnings 60 Deferred tax asset 15+15
61
Solution - 2021

Retained earing 100

Retained earning 30
62
Solution - 2022

Retained earing 150

Retained earning 45
63
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Solution - 2023
(1) Eliminate unrealized profit
Plant 200
Acc. Depreciation 200
64

65
Downstream Sale
Unrealized profit
resides in Parent’s Parent
book
Sales were
made from
90 % parent to
owned subsidiary
Mark-up inventory
remains on Subsidiary
Subsidiary’s SFP
In downstream sale, NCI’s share of profit of the subsidiary is not affected

because the adjustment affects the parent’s profit not the subsidiary
66
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Upstream: Subsidiary is the seller NCI

The group’s profit is changed
Adjustment entry
Non-controlling interest
Unrealized profit and relating Retained earnings
deferred tax (of subsidiary) (Unrealized profit –
deferred tax expense) x
NCI’s proportion
67
Impact on NCI When an Unrealized Profit Arises from

an Intragroup Transfer of FA
• Downstream sales:
– No impact on NCI
– Elimination of unrealized profit from the carrying amount of the FA will
apply only to the parent
• Upstream sales:
– NCI is adjusted against:
✓ Unrealized profit on sale of FA
✓ Subsequent depreciation to unwind the unrealized profit
✓ Tax effect on profit and depreciation adjustments
68
Illustration 1: Upstream Sale
• S is a wholly owned subsidiary of P

• On 1 April 20×1, S sold inventory costing $7,000 to its P for $10,000
• On 5 Jan 20×2, P sold the inventory to external party for $15,000
• Assumed tax rate of 20%.Year-end is 31 Dec 20×1.
Q1 What are the consolidation journal entries as at YE 31 Dec 20×1 ?

Dr Sales (S’s I/S) 10,000
Cr Cost of sales (S’s I/S) 7,000
Cr Inventory (P’s SFP) 3,000
This entry is to reduce current year profits and overstatement of
inventory from the unrealized profit of $3,000
Dr Deferred tax asset (Group SFP) 600 (3,000 * 20%)
Cr Tax expense (S’s I/S) 600
This entry is to reduce current year profits and overstatement of
69 inventory from the unrealized profit of $3,000
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Q2:What are the consolidation entries as at 31 Dec 20×2?

(1) Dr Opening RE (S’s SFP) 3,000
Cr Cost of Sale (P’s I/S) 3,000
This entry is to reduce previous year profit through opening RE and
recognize profit in the current year when the inventory is sold to a 3rd
party
(2) Dr Tax expense (Group’s P/L) 600

Cr Opening RE (S’s SFP) 600
Since the profit is realized in this year, the tax expense should be
recognized in the group’s income statement in the current year
or
Dr Deferred tax asset 600
Cr Opening RE 600
Dr Tax expense 600
Cr Deferred tax asset 600
70
If sale to an external party is only made in 20×3:

Cr Inventory (P’s I/S) 3,000
eliminate “unrealized” profit in the current year when the inventory
remains unsold to external 3rd party
(2) Dr Deferred tax asset (Group’s P/L) 600

This entry reinstates the prepaid tax and implicitly shifts the tax
expense from the past period to the future period
71
If sale to an external party is only made in 20×3:

Cr Inventory (P’s I/S) 3,000
eliminate “unrealized” profit in the current year when the inventory
remains unsold to external 3rd party
(2) Dr Deferred tax asset (Group’s P/L) 600

This entry reinstates the prepaid tax and implicitly shifts the tax
expense from the past period to the future period
72
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Illustration 2:
Upstream and Downstream Sales
 P invested in 70% of shares of S

 Intercompany transfers of inventory are as follows:
20×3 20×4
Sale of inventory from P to S $60,000
Original cost of inventory $(50,000)
Gross profit $10,000
Percentage unsold to 3 rd party at year end 10% 4%
Sale of inventory from S to P $200,000
Original cost of inventory $(170,000)
Gross profit $30,000
Percentage unsold to 3 rd party at year end 30% 0%
 Tax rate: 20%

 Net profit after tax of S: $800,000 (31 Dec 20×3)
$900,000 (31 Dec 20×4)
73
Example 4 – PPE transaction (cont)

A is an 80% owned subsidiary of B. On Jan 1st 2019, B sold an
plant to A for 400 CU in cash (carrying amount: cost 600 CU,
accumulated depreciation 400 CU). The plant had an estimated
useful life of 4 years from the date of sale. The income tax rate
was 30%.
Require
Prepare consolidation adjustments to eliminate effects of
intragroup sale of the plant on consolidated financial statements
in 2019, 2020
74
6-7. Trong năm báo cáo, Công ty mẹ bán hàng hóa cho Công ty con:
giá vốn 100 triệu đồng, giá bán 120 triệu đồng. Ngay trong năm,
công ty con bán 60% lô hàng cho bên ngoài với giá 250 triệu đồng.
Công ty mẹ sở hữu 80% vốn cổ phần của Công ty con. Thuế suất thuế
thu nhập doanh nghiệp là 20%. Bút toán điều chỉnh giao dịch nội bộ
này sẽ ảnh hưởng đến lợi nhuận của cổ đông tập đoàn trong năm là:
A. Tăng 6,4 triệu đồng.
B. Tăng 5,12 triệu đồng.
C. Giảm: 8 triệu đồng.
D. Giảm: 6,4 triệu đồng
75
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6-9. Vào ngày 1/1/X2, Công ty P sở hữu 70% cổ phiếu phổ thông
của Công ty S. Trong năm 20X2, Công ty S đã mua hàng của Công
ty P với giá 96.000 $, và đã bán ra ngoài 54.000$ vào năm 20X3.
Giá gốc lô hàng của P là $64.000. Năm tài chính kết thúc ngày
31/12. Thuế suất thuế thu nhập doanh nghiệp 20%. Giao dịch nội bộ
này đã ảnh hưởng đến lợi ích của cổ đông không kiểm soát vào ngày
31/12/X3 là:
A. Không ảnh hưởng
B. 4.224 $
C. 3.379,2 $
D. 7.680 $
76
6-18. Trong năm 20X1, công ty con bán toàn bộ lô hàng đã mua của công ty mẹ
trong năm trước với giá bán là 10.000 CU, giá mua từ công ty mẹ là 8.000 CU. Khi
bán cho công ty con lô hàng này, công ty mẹ đã ghi nhận tỷ lệ lãi gộp là 25%. Thuế
suất 20%. Bút toán điều chỉnh giao dịch nội bộ trên sổ hợp nhất của năm 20X1 bao
gồm:
A. NƠ-LỢi nhuận giữ lại: 1.600 CU/ NỢ- Chi phí thuế hoãn lại: 400/ Có- Giá vốn
hàng bán: 2.000
B. NỢ- Lợi nhuận giữ lại: 2.000/ Có Giá vốn hàng bán: 1.600/ Có- THu nhập thuế
hoãn lại: 400
C. Nợ - Tài sản thuế hoãn lại: 400 CU/ Nơ- Lợi nhuận giữ lại: 1.600/ Có Giá vốn
hàng bán: 2.000
D. Nợ- Lợi nhuận giữ lại: 1.600/ Nợ- Tài sản thuế hoãn lại: 400/Có Hàng tồn kho:
2.000
77
6-25. Vào ngày 1/1/X2, Công ty P sở hữu 70% cổ phiếu của Công ty
S. Trong năm 20X2, Công ty S bán hàng tồn kho cho P: giá gốc:
$120.000; Giá bán: $ 180.000. Trong năm 20X2, P đã bán ra ngoài
40% lô hàng. Năm tài chính kết thúc ngày 31/12. Thuế suất thuế thu
nhập doanh nghiệp là 20%. Giao dịch nội bộ này ảnh hưởng đến lợi
ích của cổ đông không kiểm soát ngày 31/12/X2 là:
A. Không ảnh hưởng
B. Tăng 8.640 $
C. Giảm 8.640$
D. Không xác định được.
78
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6-28. Công ty P sở hữu 70% lợi ích công ty S. Trong năm 20X1, Công ty con S
bán hàng hóa cho công ty mẹ (P) với lãi gộp là 20.000$, P đã bán ra cho bên thứ
ba 10% số hàng này. Năm 20X2, P bán nốt 90% số hàng còn lại ra ngoài. Thuế
suất thuế thu nhập doanh nghiệp là 20%. Bút toán điều chỉnh trên sổ hợp nhất
năm 20X2 là:
A. Nợ- Lợi nhuận giữ lại: 14.400$/ Nơ- Chi phí thuế hoãn lại: 3.600 $/ Có- Giá
vốn hàng bán: 18.000$
B. Nợ- Lợi nhuận giữ lại: 10.080$/ Nơ- Chi phí thuế hoãn lại: 2.520 $/ Có- Giá
vốn hàng bán: 12.600$
C. Nợ - Giá vốn hàng bán: 18.000$/ Có- Lợi nhuận giữ lại: 14.400 $/ Có- Thu
nhập thuế hoãn lại: 3.600$
D. Nợ - Giá vốn hàng bán: 12.600$/ Có- Lợi nhuận giữ lại: 10.080 $/ Có- Thu
nhập thuế hoãn lại: 2.520$
79

80
 Need to reassess whether the loss is indicative of impairment loss
 If loss is indicative of impairment loss:

 Loss is not adjusted out of the carrying amount of asset
 Only reverse the sale and cost of sale account for inventory
 Only reverse the sale and accumulated depreciation for FA
 If loss is not indicative of impairment loss:

 Same as unrealized profit treatment
 Unrealized loss is adjusted out of the carrying amount of asset
 Realized only when the inventory is sold to 3rd party or
depreciation for FA are corrected
81
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Illustration 5:
Unrealized Loss Arising from Intragroup Transfers
Example 1
 Parent transferred inventory to subsidiary during the year ended 31 Dec 20×6
Transfer price $60,000

Original Cost $80,000
Gross loss ($20,000)
 The loss on transfer indicated an impairment loss on the inventory
What is the consolidation journal entry?
Dr Sale 60,000
Cr Cost of Sales 60,000
Eliminate the transfer of inventory – no adjustment is made to remove
the unrealized loss
Implicit recognition of $20,000 of loss in the consolidated income statement
82
Illustration 5:
Example 2
 Parent transferred fixed asset to subsidiary during the year ended 31 Dec 20×6

Original cost $200,000
Accumulated depreciation 50,000
NBV at date of transfer $150,000
Loss on transfer $(30,000)
 The loss on transfer indicated an impairment loss on the fixed asset
What is the consolidation journal entry?
83
Illustration 5:
Dr Fixed asset 80,000

Cr Accumulated depreciation 80,000
Reinstatement of accumulated depreciation $50,000

Recognition of impairment loss of fixed asset 30,000
Adjustment to accumulated depreciation $80,000
Reclassification of loss on sale to impairment loss

Dr Impairment loss 30,000
Cr Loss on sale 30,000
Note: subsequent depreciation will take into account any revision in

useful life of the impairment in value
84
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Transfers of Assets at a Loss
 A number of other situations exists when the loss on transfer is:

✓ Either wholly an artificial or “unrealized” loss; or
✓ Combination of artificial or “unrealized” loss and impairment loss
 To determine whether a loss on an intra-group transfer includes an

impairment loss and/or artificial or “unrealized” loss:
✓ Compare the transfer price against the fair value of the asset at date of
transfer and its carrying amount
85
Illustration 6:
Transfers at a Loss
Background:
 Parent Co. transferred inventory to Subsidiary Co. on 4 April 20×1
 Assume that the inventory had not yet been resold to third parties
Situation A:

Carrying amount in P’s books $100,000
Fair value $100,000
TP FV=CA OC
“Artificial loss” “Impairment loss”

86
Illustration 6:
Transfers at a Loss
Situation A:
Group Legal entity

LCNRV test at year end “What should be” “What is” Difference
Original cost $120,000 $90,000
NRV $100,000 $100,000
LCNRV $100,000 $90,000 $10,000
“Artificial loss” adjusted as if an unrealized loss of $10,000
Impairment loss of $20,000 is recognized; no reversal on consolidation
CJE: Eliminate intercompany transfer

Dr Sales 90,000
Dr Inventory 10,000
Cr Cost of sales 100,000
87
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Illustration 6:
Transfers at a Loss
Situation B:
Fair value $120,000
TP OC=CA FV
“Artificial loss” No adjustment

Adjusted as if an required as no breach
unrealized loss of LCNRV rule
$10,000
88
Illustration 6: Transfers at a Loss
Situation B:
Group Legal entity

Original cost $100,000 $90,000
NRV $120,000 $120,000
LCNRV $100,000 $90,000 $10,000
CJE: Eliminate intercompany transfer

Dr Sales 90,000
Dr Inventory 10,000
89
Illustration 6:
Transfers at a Loss
Situation C:
Fair value $90,000
FV=CA OC TP
Impairment loss Unrealized gain

should be should be adjusted
recognized out
$10,000 $20,000
90
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Situation C:
Group Legal entity

Original cost $100,000 $120,000
NRV $90,000 $90,000
LCNRV $90,000 $90,000 0
Impairment loss $10,000 $30,000 $20,000
91
Situation C:
CJE 1: To reverse unrealized gain in inventory
Dr Sales 120,000
Cr Inventory 20,000
CJE 2: To adjust the excess impairment loss

Dr Inventory 20,000
Cr Impairment loss (COS) 20,000
Combined CJE: Elimination of sales and cost of sales

Dr Sales 120,000
92
6-31. Ngày 1/8/X0, công ty mẹ P bán lô hàng cho công ty con S theo
giá thị trường là 160 tỷ đồng. Lô hàng có giá vốn là 170 tỷ đồng. Toàn
bộ số hàng vẫn còn tồn kho tại ngày 31/12/X0. Thuế suất thuế thu nhập
doanh nghiệp là 20%. Trong năm X1, công ty con bán 35% lô hàng ra
bên ngoài. Bút toán điều chỉnh trên sổ hợp nhất năm X0 bao gồm:
A. Nơ- Doang thu: 160 tỷ đồng và Có- Giá vốn hàng bán: 160 tỷ đồng.
B. Nơ- Doang thu: 160 tỷ đồng, Nơ- Hàng tốn kho: 10 tỷ đồng và Có-
Giá vốn hàng bán: 170 tỷ đồng.
C. Nơ- Giá vốn hàng bán: 160 tỷ đồng và Có- Doanh thu: 160 tỷ đồng
D. Nơ- Giá vốn hàng bán: 170 tỷ đồng và Có- Doanh thu: 160 tỷ đồng
& Có- hàng tồn kho: 10 tỷ đồng
93
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6.33. Ngày 1/7/X0, công ty mẹ P bán lô hàng cho công ty con S với
giá 250 tỷ đồng, thấp hơn giá gốc 20%. Vào cuối năm X0, Công ty S
bán cho bên thứ ba 40% lô hàng với giá cao hơn giá mua vào từ công
ty mẹ 5%. Thuế suất thuế thu nhập doanh nghiệp là 25%. Bút toán
điều chỉnh trên sổ hợp nhất năm X0 bao gồm:
A. Nơ- Doanh thu: 250 tỷ đồng/ Nợ- Hàng tồn kho: 7,5 tỷ đồng và Có-
Giá vốn hàng bán: 257,5 tỷ đồng.
B. Nơ- Doanh thu: 250 tỷ đồng, Nơ- Hàng tồn kho: 25 tỷ đồng và Có-
Giá vốn hàng bán: 270 tỷ đồng.
C. Nơ- Giá vốn hàng bán: 250 tỷ đồng và Có- Doanh thu: 250 tỷ đồng
D. Nơ- Giá vốn hàng bán: 270 tỷ đồng và Có- Doanh thu: 250 tỷ đồng
& Có- hàng tồn kho: 20 tỷ đồng
94
6.37 Ngày 1/7/X0, công ty mẹ P bán lô hàng cho công ty con S với giá
thấp hơn giá gốc 15 %. Lô hàng có giá gốc là 48 tỷ đồng. Trong năm
X0, công ty con chưa bán lô hàng ra ngoài. Vào ngày 31/12/X0, giá trị
thuần có thể thực hiện của lô hàng là 44 tỷ đồng. Thuế suất thuế thu nhập
doanh nghiệp là 20%. Bút toán điều chỉnh trên sổ hợp nhất năm X0 bao
gồm:
A. Nơ- Doanh thu: 40,8 tỷ đồng/ Nợ- Hàng tồn kho: 3,2 tỷ đồng/ Có- Giá
vốn hàng bán: 44 tỷ đồng.
B. Nơ- Doanh thu: 40,8 tỷ đồng/ Có- Giá vốn hàng bán: 40,8tỷ đồng.
C. Nơ- Doanh thu: 48 tỷ đồng/ Có-Giá vốn hàng bán: 44 tỷ đồng và Có-
Hàng tồn kho: 4 tỷ đồng
D. Nơ- Giá vốn hàng bán: 48 tỷ đồng và Có- Doanh thu: 40,8 tỷ đồng &
Có- hàng tồn kho: 7,2tỷ đồng
95
Content
96
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5/26/2022
1. Consolidation theories
2. Non – controlling interest
3. Consolidated Retained Earnings
97
• Theories relating to consolidation are critical when the percentage of ownership in
a subsidiary is less than 100%
• Termed “partially owned subsidiary”, where the remaining percentage is owned
by shareholders who are collectively referred to as “non-controlling interest”
(NCI)
Parent Non-controlling interests
90% 10%
Subsidiary
Both parent and non-controlling interest have a proportionate share of the subsidiary’s:
• Net profit; • Share capital
• Dividend distribution; • Retained profits and changes in equity
98
Issues Entity Theory Parent Theory

Who are the primary users Both non-controlling Benefit of parent company
of the consolidated interest and majority shareholders
financial statements? shareholders
Shown as equity in BS Shown as equity in BS

How should non- based on: based on:
controlling interests be Consolidated equity Consolidated equity
reported in the consolidated = +
balance sheet? Consolidated assets NCI
− =
Consolidated liabilities Consolidated assets
−
Consolidated liabilities
99
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Issues Entity Theory Parent Theory
Should net assets of the
subsidiary acquired be Fair value of net assets NCI net assets of
shown at full fair values of subsidiary at date of subsidiary at date of
or at the parent’s share of acquisition reported in acquisition shown at
the fair value? full book value
Do non-controlling Goodwill = asset of Asset of parent and

shareholders have a share economic unit, and restricted to parent’s
of goodwill? reflected in full share
How should net profit of Reported in full as NCI’s share of current

partially-owned accruing to both profit is a deduction of final
subsidiary be reported? majority and NCI profit
100
Summary of Differences
Attributes Entity Theory Parent Theory
Fair value differences in Recognized in full,

relation to identifiable assets reflecting both parent’s Recognized only in
and liabilities at date of and NCI’s share of fair respect of parent’s share
acquisition value adjustments
Presentation of NCI As part of equity Neither as equity or debt
Goodwill is an entity asset

and should be recognized
Goodwill Goodwill is parent’s asset
in full as at date of
acquisition
101
Proprietary Theory
 Relevant to accounting for joint ventures
 Parent seen as having a direct interest in a subsidiary’s assets

and liabilities
– Resulting in proportional or pro-rata consolidation
(parent’s interest is directly multiplied to each individual
asset or liability of subsidiary and combined with parent’s
Hoang Trong Hiep, MSc, CFE 102
assets and liabilities).
102
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Example 1
 One 01/01/2019, P Co acquired 80% of issued shares of S Co.
for $1,200,000, paid in cash. Net asset of S Co. at acquisition
date is $1,200,000. All assets were measured at their fair value,
except for a machine had its fair value higher than its carrying
amount, by $100,000. Tax rate is 0%. 20% of issued shares of
S Co. has a market value at $300,000
 Net asset of S Co. at 31/12/20x1: $1,270,000
 Net profit after tax (NPAT) of S Co.: $70
 Net profit after tax (NPAT) of P Co.: $350
103
Solution
Net profit after tax and NCI
Parent theory
NCI’s share of net profit is after tax completed as follows:
= 20% × S’s net profit after tax
= 20% × $70
= $14
Entity Theory
NCI are not shown as a deduction but included in entity-wide NPAT.
Disclosure is made of the amount of NPAT that relates to NCI
= (100% × P’s NPAT) + (80% × S’s NPAT)
= (100% × $350) + (80% × $70)
= $406
104
Solution
Goodwill
Parent Theory
Goodwill = Investment in S – P’s ownership %
× (FV of S’s identifiable net assets at date of acquisition)
= $1,200 – (80% × $1,300)
= $160
Entity theory
Parent’s share of goodwill = $160
NCI’s share of goodwill = Fair value of NCI – share of FV of
identifiable net assets
= $300 – (20% × $1,300)
= $40
105
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Solution
Presentation of NCI
Parent Theory
Non-controlling interests are shown separately from equity
Non-controlling interests = Non-controlling interest % × BV of S’s equity
= 20% × $1,270
= $254
Entity Theory
Non-controlling interests are deemed to have an equity interest and are thus
presented as a component in equity
Non-controlling interests = Non-controlling interest % × (BV of S’s equity
+ FV adjustments) + NCI’s share of
goodwill
= 20% × ($1,270 + $100) + $40
= $314
106
107

 NCI only arises in consolidated financial statements where:
 one or more subsidiaries are not wholly owned by the parent (IFRS 10)
• NCI are entitled to their share of retained earnings of the subsidiary from
incorporation
 No distinction between pre-acquisition and post-acquisition retained earnings
for NCI
• Same applies to OCI
 NCI collectively have a share of accumulated OCI arising from incorporate date
to the current date
• NCI are normally a credit balance
 Share of residual interests in the net assets of a subsidiary
 Total equity (parent’s and NCI) = Assets – Liabilities
108
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Analysis of Non-Controlling Interests
Share of book
Balance of Share of book value of
Unimpaired
non- value of remaining (FV
= + + goodwill
controlling subsidiary’s – BV) of
attributable
interests at equity at identifiable net
to NCI
reporting date reporting date assets at
reporting date
• The analysis of non-controlling interests enables us to efficiently assess

the balance of non-controlling interests
• Another method of arriving at the non-controlling interests is to build up

the balance chronologically through the consolidation process
109
Elements of non-controlling interests
Date of Beginning of End of

Incorporation
acquisition current year current year
date
NCI have a share NCI have a share of NCI have a share
of of
1. Change in share
1. Share capital capital 1. Profit after tax
2. Retained 2. Change in 2. Current
earnings retained earnings amortization of
fair value
3. Other equity 3. Change in other
differential
equity
4. Fair value 3. Current
differentials 4. Past
impairment of
amortization of
5. Goodwill goodwill
fair value
differential 4. Dividends as a
repayment of
5. Past impairment
profits
of goodwill
5. Change in other
equity
110
NCI – At acquisition date
Non-controlling
interests
Measured at Fair value at Measured as a proportion of the

acquisition date (include recognized amounts of the identifiable
goodwill) assets as at acquisition date
Fair value method Proportionate method
Full goodwill method Partial goodwill method
111
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NCI – At acquisition date – FV method

• Under the fair value basis:
– FV is determined by either the active market prices of
subsidiary’s equity share at acquisition date or other
valuation techniques
– FV per share of NCI may differ from parent because of
control premium paid by parent (e.g. 20% premium over
market price to gain control)
– NCI comprises of 3 items:
Non-controlling
interests
Share of
Share of book value unamortized Goodwill attributable to
of net assets FV adjustment NCI
(FV – BV)
112
NCI – At acquisition date

– Proportionate method
• Under proportionate method:

– NCI is a proportion of the acquiree’s identifiable net assets (i.e.
not full fair value)
– NCI comprises of 2 items:
Non-controlling
interests
Share of
Share of book value unamortized
of identifiable net assets of FV adjustments
(FV – BV)
113
Non-Controlling Interests’ Share of Goodwill

• Under the fair value option:
– Journal entry to record NCI at fair value (re-enacted each year):
Dr Share capital of subsidiary
Dr Retained earnings at acquisition date
Dr Other equity at acquisition date
Dr FV differentials (FV – BV)
Dr Goodwill (Parent & NCI)
Dr/Cr Deferred tax asset / (liability) on fair value adjustment
Cr Investment in subsidiary
Cr FV differentials (BV – FV)
Cr Non-controlling interests (At fair value)
114
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In summary
Fair value method Proportionate method
Book value of net assets
Fair value – Book value of net

assets
Goodwill
115
Allocation to Non-controlling Interests
1. Allocation of the change in equity from date of acquisition to the

beginning of the current period
Dr Retained earnings (NCI % × in RE from acquisition date to

beginning of current period)
Cr NCI
• No distinction between pre-acquisition or post-acquisition profits
• To transfer the NCI’s share of subsidiary’s retained earnings to NCI
116
2. Allocation of current profit after tax to NCI

Dr Income to NCI
Cr NCI
• Attribution of profit to NCI is not expense item and should not be

shown above the profit after tax line
• Without attribution, retained earnings of the group would be over-stated

and NCI’s share of equity would be under-stated
• The same attribution principle applies to Other Comprehensive Income

(OCI) – NCI are attributed their share of OCI arising during a period
✓ Examples: Revaluation surplus or deficit on property, PPE and

intangible assets etc.
117
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3. Allocation of dividends to NCI

• Reverses the profit and loss effects of dividends in
consolidated income statement
• A repayment of profits by a subsidiary
• Reduces the NCI’s residual stake in the net assets of the
subsidiary
Dr Dividend income (Parent)

Dr NCI (Equity)
Cr Dividends declared (Subsidiary)
118
7-7. P sở hữu 70% lợi ích S. Trong năm 20X3, S bán cho P một lô hàng: Giá gốc là
170.000$, giá bán là 200.000$, đến cuối năm P bán ra ngoài 70% lô hàng. Cuối năm
20X4, 30% lô hàng còn tồn kho. Trong năm 20X3 P bán cho S một lô hàng: giá gốc
50.000 $, giá bán 60.000$, S đã bán ra ngoài 90% lô hàng này. Trong năm 20X4, S bán
tiếp 6% lô hàng đã mua của P. Lợi nhuận sau thuế của S hai năm 20X3 và 20X4 lần
lượt là: 800.000$ và 900.000$. Thuế suất 20%. Chênh lệch giá trị hợp lý tài sản
thuần của công ty con ngày mua đã được phân bổ hết năm X2. Thu nhập thuộc cổ
đông không kiểm soát các năm 20X3 và 20X4 lần lượt là:
A. 237.840 $ và 270.000 $
B. 240.000 $ và 270.000$
C. 240.000$ và 270.108$
D. 237.600 và 270.108 $
119
7-11. Ngày 1/1/20X2, Cty con S bán cho cty mẹ (P) (sở hữu 90% lợi
ích của S) 1 thiết bị sản xuất: Giá gốc: 400.000 $, thời gian khấu hao
gốc 10 năm, thời gian còn lại 8 năm, giá bán: 360.000$. Lợi nhuận
sau thuế của S năm 20X2 và 20X3 lần lượt là 500.000 $ và 800.000 $.
Thuế suất 20%, năm tài chính kết thúc ngày 31/12. Thu nhập thuộc
cổ đông không kiểm soát các năm 20X2 và 20X3 lần llượt là:
A. 47.200$ và 80.400 $
B. 50.000$ và 80.000 $
C. 80.400 $ và 47.200 $
D. 47.600 $ và 79.600$
120
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5-8.Ngày 1/1/ 2020, công ty M (năm tài chính kết thúc ngày 31/12) mua
65% vốn cổ phần trong công ty C. Tại ngày mua có thông tin sau: Vốn đầu tư
chủ sở hữu 550 tỉ đồng, Lợi nhuận giữ lại 50 tỉ đồng. Ngoài ra có một TSCĐ
vô hình có giá trị hợp lýnhỏ hơn giá trị ghi sổ là 100 tỉ đồng, tài sản này
được phân bổ trong 4 năm kể từ ngày mua. Lợi nhuận giữ lại của công ty B
vào các ngày 31/12/X0 và 31/12/X1 lần lượt: 80 tỉ đồng và 100 tỉ đồng. Cả
ba năm đều không có tổn thất lợi thế thương mại. Lợi nhuận sau thuế của C
năm X2 là 100 tỷ đồng, và chia cổ tức 20 tỷ đồng. Thuế suất 20%. Giá trị
lợi ích của cổ đông không kiểm soát (NCI) trình bày theo phương pháp tỷ lệ
vào ngày mua và ngày 31/12/2022 lần lượt là (Đvt: tỷ đồng):
A. 192 và 248,5
B. 192 và 255,5
C. 182 và 255,5
D. 182 và 248,5
121
122
 Balance in retained earnings is the net result of transactions involving

income and expenses.
 Two methods to obtaining via:
 Consolidation process through listing out all the consolidation
adjustments that affect the retained earnings
 Analytical approach
P’s RE + P’s
P’s share of Consolidated
share of P’s share of
unrealized retained
investee’s – expensing of – =
profit or loss earnings at
post- FV-BV of INA
at reporting reporting
acquisition and goodwill
date date
RE
123
41
5/26/2022
Illustration 7
P’s retained earnings as at 31 December 20×6 $1,000,000

S’s retained earnings as at 31 December 20×6 $500,000
S’s pre-acquisition retained earnings $300,000
P’s ownership interests in S acquired on 1 July 20×4 90%
Dividend income from S recognized by P during post- $90,000
acquisition period
Dividend declared by S during post-acquisition period $100,000
124
Illustration 7
 Consolidated retained earnings as at 31 December 20×6

= P’s retained earnings as at 31 December 20×6 + P’s share of S’s post-
acquisition retained earnings at 31 December 20×6
= $1,000,000 + [90% × ($500,000 – $300,000)]
= $1,000,000 + $180,000*
= $1,180,000
*The dividend income from S of $90,000 that is recognized in P’s legal entity
retained earnings will be offset by 90% of dividends declared by S that is
included in the $180,000.
125
3.Consolidated Retained Earnings
 Under-or over-valued identifiable net assets at acquisition date of a

subsidiary would be expensed, depreciated or consumed by the acquiree
overtime. Hence requiring consolidation adjustments.
 These adjustments would have to be represented in the analytical check as

they would not be recorded in the legal entity’s books.
 This applies to goodwill impairment loss that is attributable to the parent

company.
126
42
5/26/2022
Illustration 8
 Illustration 8 is an extension of Illustration 7

 Assuming that S’s intangible asset was undervalued by $50,000 at
acquisition date
 Intangible asset had a remaining useful life of 10 years from acquisition date
 Consolidated retained earnings reflected the amortization of 2.5 years of
the intangible asset.

P’s share of post acquisition retained earnings of S $180,000
P’s share of cumulative amortization of the intangible asset, after ($9,000)
tax
127
3.Consolidated Retained Earnings
 Parent company’s legal entity retained earnings may include:

 Remaining unrealized profit from downstream transfers
 Share of post-acquisition retained earnings of S may include:

 Remaining unrealized profit from upstream transfers
 Remaining unrealized profit (loss) must be removed to arrive at the

consolidated retained earnings.
 Downstream transfers: entire remaining amount has to be removed
 Upstream transfers: amount is the same as the adjustment to arrive at
the non-controlling interests’ balance.
128
Illustration 9
 Following from Illustration 8
Transfer of inventory from P Co. to S Co.

% unsold at 31 December 20×6 30%
Transfer of equipment from S Co. to P Co.

Net book value at date of sale $100,000
Remaining useful life at date of sale 10 years
Remaining useful life at 31 December 20×6 6 years
129
43
5/26/2022
Illustration 9
 Consolidated retained earnings balance at 31 December 20×6

P’s share of post acquisition retained earnings of S $180,000
P’s share of cumulative amortization of the intangible ($9,000)

asset, after-tax
P’s share of unrealized profit from upstream sale, after-tax ($8,640)

(Note A)
P’s share of unrealized profit from downstream sale, after-tax ($7,200)
(Note B)
130
Illustration 9
 Note A:
P’s share of unrealized profit from upstream sale
= 90% × 80% × ($20,000/10 × 6)
= $8,640
 Note B:
P’s unrealized profit from downstream sale
= 30% × 80% × ($100,000 – $70,000)
= $7,200
131
End
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5/26/2022

Nguyễn Thị Thu Hiền

1. Elimination of Investment in a Subsidiary (Entry 1)

1. Elimination of Investment Account

What the parent is paying for

Consideration Share of book Share of excess

Illustration 1: Elimination of Investment

Share capital: $50,000

At acquisition date, Subsidiary Co. had an unrecognized intangible asset had a

Illustration 1: Elimination of Investment

Illustration 1: Elimination of Investment

Illustration 1: Elimination of Investment

CJE1: Elimination of investment in subsidiary

• Building blocks of consolidation worksheet are the legal entity financial

công ty C. Giá thị trường cổ phần

Nợ phải trả (20) (20) 0

1. Elimination of Investment in a Subsidiary (Entry 1)

2. Amortization of fair value differential

2. Amortization of fair value differential

2. Amortization of fair value differential

BV of expense in (FV – BV) adjustment FV of expense

Thí dụ 1 (tt): Chênh lệch GTHL ngày mua.

Book value Fair value Remaining useful life

Share capital 1,000,000

Q1 : Prepare the consolidation adjustments for P Co. for 20×5

 Consideration transferred = Cash consideration + Fair value

 Deferred tax liability = 20% × ($7,600,000 − $4,700,000)

 Goodwill = Consideration transferred + NCI – Fair value of net

• P’s share of goodwill = Consideration transferred – 80% × Fair

• NCI’s share of goodwill = Consideration transferred – 20% × Fair

Consolidation adjustments for 20×5

Dr Share capital 1,000,000

Dr Depreciation of leased property 50,000

CJE 3: Reversal of entry relating to provision for loss

Dr Provision for loss 100,000

Note: Contingent liability was already recognized in CJE 1. The

CJE 4: Tax effects on CJE 2 & CJE 3

Dr Deferred tax liability (net) 30,000 20% * (200k +

Dr Income to NCI 176,000

Net profit after tax 1,000,000

1. Elimination of Investment in a Subsidiary (Entry 1)

3.Goodwill Impairment Test

3. Goodwill Impairment Test

3. Goodwill Impairment Test

3. If carrying amount > recoverable amount

3.Goodwill Impairment Test

Steps for impairment test

Determine the carrying amount of the CGU

Determine the recoverable amount of the CGU

Recoverable amount: Higher of fair value or value in use

If carrying amount ≤ If carrying amount ≥

Allocate impairment loss

3. Goodwill Impairment Test

Company × has 80% ownership in a CGU with identifiable net

(a) NC measured at FV at acquisition date. Goodwill recognized

Goodwill Identifiable net assets Total

Impairment loss borne by

NCI's stet share of goodwill 250000 (20% × $1 million/0.8) 250,000